Washington lawmakers enacted a $2 trillion stimulus bill last week intended to provide immediate relief and cash flow flexibility to American businesses. This stimulus bill contains a wealth of tax provisions, and from them, we identified five key tax law changes that likely will have a significant effect on your company’s tax planning.
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- Net operating loss (NOL) carrybacks: The bill provides that NOLs arising in tax years beginning after Dec. 31, 2017, and ending before Jan. 1, 2021, can be carried back five years. The ability to carry back current NOLs to years before the enactment of the Tax Cuts and Jobs Act (TCJA) gives corporations a valuable way to use deductions and losses against the pre-TCJA corporate rate of 35%. The bill also fixes an error in the TCJA that disallowed carrybacks from a tax year ending in 2018.
- Qualified improvement property (QIP) correction: The bill corrects an error in the TCJA in which QIP was mistakenly left off a list of property classifications qualifying for a 100% bonus depreciation. Because this change is retroactive to the TCJA’s enactment date, taxpayers likely will be able to amend prior returns to claim this benefit -- or they can use it on their next return by changing accounting methods. QIP is defined broadly to include almost any improvement to leased or owned interior space, and the change will particularly help the retail and hospitality industry.
- Employee retention credit: The new law offers the ability to claim a 50% credit for paying up to $10,000 in wages, per employee, if a business was fully or partially suspended due to a government order. The credit also applies to businesses seeing more than a 50% gross receipts reduction in the first quarter of the 2020 calendar year compared to the same quarter in 2019. One caveat -- businesses with more than 100 full-time employees must establish that employees provided no services for their wages while the business was suspended or if its gross receipts declined.
- Payroll tax suspension: This bill also allows employers to defer deposits of the 6.2% employer portion of the Social Security tax for Old Age, Survivors, and Disability Insurance from the date of enactment (March 27) through the end of the year. Combined with recent IRS administrative relief providing a three-month delay for income and estimated tax payments, this provision provides companies significant cash-flow flexibility.
- Alternative Minimum Tax (AMT) credit refund: This part of the legislation allows corporations to immediately claim unused AMT credits. The TCJA repealed the corporate AMT and provided that unused credits could be used as refundable credits over the 2018, 2019, 2020 and 2021 tax years. This bill allows those credits to be claimed fully for 2018 and 2019. Companies should already have recovered half those credits since 2018, so this change will allow claiming the other 50% on a company’s 2019 return or amending a company’s 2018 return to claim that remaining 50%.
on this important piece of legislation.